Required Report: Required - Public Distribution Date: April 15, 2021

Report Number: SF2021-0021

Report Name: Sugar Annual

Country: South Africa - Republic of

Post: Pretoria

Report Category: Sugar

Prepared By: Wellington Sikuka

Approved By: Kyle Bonsu

Report Highlights:

Post forecasts that the South African sugar cane crop will increase by 3 percent to 18.8 million Metric Tons (MT) in the 2021/22 MY, based on normal weather conditions, improvements in yields, and marginal increases in area planted. Post forecasts that raw sugar production will increase by 3 percent to 2.2 million MT in the 2021/22 MY, based on the increase in quantity of cane delivered to the mills, a longer milling season, and consistent mill efficiencies (sugar recovery rate). South Africa is expected to fully utilize the United States Tariff Rate Quota (TRQ) allocation in the 2021/22 MY. The industry has been able to successfully increase domestic demand by 150,000 MT in the 2020/21 MY, partly due to the recently introduced Sugar Master Plan and the surge in demand for home consumption during the COVID-19 lockdowns.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY

Commodities: Sugar, Centrifugal Sugar Cane for Centrifugal

Sources Illovo Sugar Company - http://www.illovo.co.za RCL Sugar Company - https://rclfoods.com/ South African Canegrowers Association - http://www.sacanegrowers.co.za South African Farmers Development Association - http://sa-fda.org.za/ South African Revenue Services - www.sars.gov.za South African Sugar Association - http://www.sasa.org.za South African Sugar Association - http://www.sasa.org.za Tongaat Hulett Sugar - http://www.huletts.co.za

MT – Metric Tons MY – Marketing Year (April – March)

1US$ = 14.47 Rands as at April 14, 2021

Background

Sugar cane in South Africa is grown in the Kwa-Zulu Natal Province and Mpumalanga Province as shown in Figure 1. Sugar cane production in the Kwa-Zulu Natal Province is 95 percent rain fed with limited irrigated areas, while production in the Mpumalanga province is fully irrigated using center pivots, sprinklers and the canal system. At least 80 percent of the sugar cane production is supplied by large scale farmers, and the remaining 20 percent of production is accounted for by small scale farmers.

The sugar industry classifies growers based on sugar cane production. The term “large scale growers” refers to all growers producing above 1,800 Metric Tons (MT) of sugar cane per season, and all growers producing less than 1,800 MT of sugar cane are classified as “small scale growers”. Typically, small scale growers have less than 30 hectares, and the majority of small scale farmers in the communal areas have less than 1 hectare. In total there are approximately 22,950 registered sugar cane growers in South Africa, comprising of 1,369 large scale growers and 21,581 small scale growers. Both large scale and small scale farmers are required to sign a sugarcane supply agreement with a specific sugar mill to guarantee that they will supply the respective mill and that their sugar cane deliveries will be accepted if they meet the agreed quality standards.

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Figure 1: Map of Sugarcane Production Areas in South Africa

Source: South African Sugar Association (SASA)

Figure 2 shows the structure of the South African sugar industry. The South African Sugar Association (SASA) is funded by both growers and milling companies, and is the highest decision making authority in the industry on common issues for sugar cane growers and sugar millers. SASA provides support services to the entire industry’s value chain including the export of all the raw sugar, cane testing, and policy advocacy. SASA was established by the Sugar Act of 1978 and is under the authority of the Department of Trade, Industry and Competition (DTIC). The South African Sugar Research Institute (SASRI) is a division of SASA and conducts scientific research on sugar cane varieties, pests, diseases, and crop protection. SASRI also provides extension and meteorology services for the industry.

There are two associations representing sugar cane growers, the South African Canegrowers Association (SACGA) and the South African Famers Development Association (SAFDA). SACGA was the first association established in 1927 and currently represents predominantly white large scale growers with some small scale growers. SAFDA was formed in 2017, initially to represent the interest of black sugar cane farmers due to the slow pace of transformation in the industry. However, some white commercial farmers are members of SAFDA due to the services that it offers including bulk procurement of inputs, land reform support and development finance.

The South African Sugar Millers Association (SASMA) represents the interests of the six sugar milling companies; Tongaat Hulett Sugar Ltd, Illovo Sugar Ltd, Tsb Sugar RSA Ltd, Gledhow Sugar Company, Umfolozi Sugar Mill Ltd and UCL Company Ltd. These six milling companies own a combined total of 13 sugar mills, 11 in the Kwa-Zulu Natal Province and 2 in the Mpumalanga Province. Two of the sugar mills (Darnall and Umzimkulu Mill) were not opened in the 2020/21 MY, due to financial

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challenges and the milling company’s strategy to maintain their commercial viability. The financial challenges faced by the sugar industry has also resulted in Umzimkulu Mill being permanently closed in the 2021/22 MY. There are concerns that if the status quo remains, more sugar mills may be permanently closed which will be devastating to the rural communities and towns who rely on these mills for employment, business and development opportunities. The Tongaat Hulett Sugar Ltd, Illovo Sugar Ltd, RCL Foods (Formerly known as Tsb Sugar RSA Ltd), and Umfolozi Sugar Mill Ltd produce both raw and refined sugar. The Umfolozi Sugar Mill Ltd and UCL Company Ltd only produce raw sugar. The Gledhow Sugar Company only produces refined sugar. Tongaat Hulett Sugar Ltd, Illovo Sugar Ltd, and RCL Foods also own sugar mills outside South Africa in Eswatini (formerly known as Swaziland), Malawi, Zimbabwe, Zambia, Mozambique, and Tanzania. The Sugar Milling Research Institute (SMRI) is involved in research on sugar manufacturing, and provides technical services to the Southern African sugar milling and refining industries.

Figure 2: Structure of the South African Sugar Industry

SOUTH AFRICAN SUGAR ASSOCIATION (SASA)

S.A Sugar Research Institution (SASRI)

Sugar Milling Research S.A MILLERS ASSOCIATION Institute CANE FARMERS FEDERATION (SASMA) (SMRI

S.A Cane Growers S.A Farmers Development Tongaat Hulett Sugar Ltd Illovo Sugar Ltd Association Association (SACGA) (SAFDA)

RCL Sugar RSA Ltd Umfolozi Sugar Mill Ltd

UCL Sugar Company Ltd Gledhow Sugar Company

Source: SASA, SACGA, & SAFDA.

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Sugarcane:

Production

Post forecasts that the sugar cane crop will increase by 3 percent to 18.8 million MT in the 2021/22 MY, up from 18.2 million MT in the 2020/21 MY. This is based on normal weather conditions, improvements in yields, marginal increases in area planted, and industry efforts including under the Sugar Master Plan to increase production, especially for small scale farmers. This is expected to be partially offset by some growers diversifying to more profitable crops, lower replanting from growers who are under financial distress, and risks of carry-over cane due to the limited milling capacity following the permanent closure of Umzimkulu mill and temporary closure of the Darnall mill. The 2021/21 MY sugar cane production was revised downwards to 18.2 million MT, due to cane that was carried over and could not be milled due to limited milling capacity. The full impact of rising costs of fuel, transport, fertilizer, chemicals and labor (due to the increase in minimum wages) are only expected to have an impact on sugar cane production in the medium term and not in the 2021/22 MY.

The industry expects the impact of COVID-19 on the 2021/22 MY sugar cane production to be minimal based on normal operations in most farms and minimal disruptions to inputs or labor supply during harvesting. There is no commercial sugar beet production in South Africa.

The impact of the drought on sugar cane production from the 2014/15 MY and 2016/17 MY is evident in Figure 3. Sugar cane yields are expected to increase to 74.9 MT/hectare (HA) in the 2021/22 MY, from 72.9 MT/HA in the 2020/21 MY, due to normal weather conditions and improved performance of new cane varieties. Table 1 shows the cane yields since the 2012/13 MY. Notably, the variation in cane yields ranges widely from 30 MT/HA for dryland smallholder farmers in the Kwa-Zulu Natal Province to about 95 MT/HA for farmers in the irrigated growing regions of the Mpumalanga Province.

Higher costs of production, due to increases in fertilizer, electricity and fuel costs, and declining sugar cane prices have resulted in some farmers diversifying to macadamia nuts, avocados, citrus, vegetables and poultry production. To reduce the cost of electricity, the SACGA has started the production of electricity using biogas under their subsidiary company Womoba Pty Ltd in partnership with one grower. It is expected that, should the project prove to be viable, some sugar cane farmers in irrigated areas would also invest in biogas projects to improve farm profitability and reduce electricity costs. Some sugar cane growers are in the process of investing in the production of stevia to diversify their income streams.

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Figure 3: South African Sugar Cane Production 25,000,000

20,000,000

15,000,000 Production (MT) Production

10,000,000

Sugarcane 5,000,000

0

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2019/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

2020/21* 2021/22** Sugarcane Production Average Sugarcane Production

* Estimate. **Forecast Source: South African Canegrowers Association & Post Forecasts

Table 1: Sugarcane Production and Yields in South Africa Area planted Area Cane Crushed Yield MY (Ha) Harvested (Ha) (MT) (MT/Ha) 2012/13 371,662 257,095 17,278,020 67.2 2013/14 378,922 265,939 20,032,969 75.3 2014/15 381,707 272,590 17,755,504 65.1 2015/16 370,335 258,497 14,861,401 57.5 2016/17 360,000 260,000 15,074,610 58.0 2017/18 362,000 275,000 17,388,177 63.2 2018/19 364,041 247,385 19,031,688 76.9 2019/20 372,829 249,500 19,241,812 77.1 2020/21* 374,000 250,000 18,220,466 72.9 2021/22** 375,000 251,000 18,800,000 74.9 * Estimate. **Forecast. Source: South African Canegrowers Association & Post Forecasts

Sugar cane growers in South Africa are paid by mills based on the quality of sugar cane they deliver at the mill. The quality of sugar cane is measured using an industry agreed formula and is known as the Recoverable Value Tonnage (RVT). As a result, growers always aim to supply sugarcane that achieves the highest amount of sugar content that the mill can recover. The price paid to sugarcane growers also

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takes into account the net revenue obtained from the sale of sugar and molasses in the export and domestic markets. Table 2 shows that the sugarcane price paid to growers is forecast to increase by 19 percent to R5,500 (US$380) in the 2021/22 MY, from R5,030 (US$348) in the 2020/21 MY, based on the increase in revenue due to the growth in local market sales. The export prices are in US$, hence they are subject to exchange rate fluctuations.

Table 2: Sugarcane Prices Paid to Growers Price MY Percentage Change (Rands/ Recoverable Value Ton) 2012/13 3,197.32 6% 2013/14 3,137.87 -2% 2014/15 3,437.97 10% 2015/16 3,979.22 16% 2016/17 4,931.91 24% 2017/18 4,187.11 -15% 2018/19 3,574.41 -15% 2019/20 4,220.58 18% 2020/21* 5,030.39 19% 2021/22** 5,500.00 9% *Estimate. **Forecast. Source: South African Canegrowers Association & Post Forecasts.

Table 3: Production, Supply and Demand (PS&D) for Sugar Cane Sugar Cane for Centrifugal 2019/2020 2020/2021 2021/2022 Market Begin Year Apr 2019 Apr 2020 Apr 2021 South Africa USDA Official New Post USDA Official New Post USDA Official New Post Area Planted 373 373 374 374 375 Area Harvested 261 261 262 262 263 Production 19242 19242 19100 18220 18800 Total Supply 19242 19242 19100 18220 18800 Utilization for Sugar 19242 19242 19100 18220 18800 Utilization for Alcohol 0 0 0 0 0 0 Total Utilization 19242 19242 19100 18220 18800

(1000 HA) ,(1000 MT)

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Sugar:

Production

Post forecasts that South African raw sugar production will increase by 3 percent to 2.2 million MT in the 2021/22 MY, from 2.1 million MT in the 2020/21 MY, based on the increase in quantity of cane delivered to the mills, a longer milling season, and consistent mill efficiencies (sugar recovery rate). Sugar recovery rate refers to the number of kilos of sugar obtained from a metric ton of sugar cane, expressed as a percentage. The percentage of sugar produced from each ton of sugar cane is estimated to remain flat at 11.56 percent in the 2021/22 MY, as shown in Table 4. The 2020/21 MY sugar production was revised downwards to 2.1 million MT, due to lower than expected sugar cane deliveries, and limited milling capacity due to the closure of two sugar mills.

Two sugar mills (Darnall and Umzimkulu) were not opened in the 2020/21 MY, due to the financial difficulties faced by the industry. The closure of the two sugar mills resulted in growers diverting their sugar cane to other sugar mills and the operating mills struggled to crush all the cane in the 2020/21 MY. Diversion of cane means higher transport costs as cane is transported over longer distances, and deterioration of cane quality due to the longer time period between harvesting and crushing. While the Umzimkulu mill has been permanently closed and the Darnall mill will be temporary closed in the 2021/22 MY, most sugar mills opened earlier than usual to lessen the risks of failing to crush some of the cane as was the case in the 2020/21 MY. The impact of COVID-19 on the 2021/22 MY sugar production is forecast to be minimal due to normal operations at sugar mills and limited disruptions to input and labor supply.

Table 4: Sugar Production and Factory Recoveries in South Africa Cane Crushed Sugar Production Sugar Production Sugar/ Cane Ratio MY (MT) (Tel Quel MT) (Raw Value MT**) (Percentage) 2012/13 17,278,020 1,951,518 2,019,821 11.69% 2013/14 20,032,969 2,352,878 2,435,229 12.16% 2014/15 17,755,504 2,118,232 2,192,370 12.35% 2015/16 14,861,401 1,627,395 1,684,354 11.33% 2016/17 15,074,610 1,553,229 1,607,592 10.66% 2017/18 17,388,177 1,993,727 2,063,507 11.87% 2018/19 19,031,688 2,181,161 2,257,502 11.86% 2019/20 19,241,812 2,217,055 2,294,652 11.93% 2020/21* 18,220,466 2,034,998 2,106,223 11.56% 2021/22** 18,800,000 2,100,000 2,173,500 11.56% * Estimate. ** Forecast. ***Raw Value = Tel Quel x 1.035. Source: SACGA, SASA and Post Estimates.

Figure 4 shows that sugar production from the 2018/19 MY to 2020/21 MY is above the average sugar production levels. This marks a return to normal sugar production after four years of drought between the 2015/16 MY and 2017/18 MY. However, sugar production is yet to reach the peak production levels of 2.8 million MT recorded in the 2002/03 MY.

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Figure 4: Sugar Production 3,000,000

2,500,000

2,000,000

1,500,000

1,000,000 Sugar Production (MT) Production Sugar 500,000

0

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2019/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

2020/21* 2021/22** Sugar Production Average Sugar Production

*Estimate. **Forecast. Source: SASA

Consumption

Post forecasts that domestic sugar consumption will increase by 2 percent to 1.71 million MT in the 2021/22 MY, from 1.67 million MT in the 2020/21 MY. This is based on the growth in population and continued improvements in demand from the local industry following various initiatives by the Sugar Industry Master Plan. The industry has been able to successfully increase demand by 150,000 MT in the 2020/21 MY, partly due to the surge in demand for home consumption during the COVID-19 lockdowns and commitments by local manufacturers to use domestic sugar as part of the Sugar Industry Master Plan.

In the past 3 years, domestic consumption has been impacted by the decrease in demand of sugar from the beverage sector following the introduction of the tax on sugar sweetened beverages in 2018 and the increase in the tax in 2019. Information on the impact of the sugar tax may be obtained from the following GAIN report published in March 2019, South African Sugar Industry Crushed by Not So Sweet Tax. The domestic consumption of sugar is expected to increase by up to 300,000 MT in the next 3 years if the recently announced South African Sugarcane Value Chain Master Plan to 2030 is implemented effectively. Notably, most beverage manufactures seem to have completed their reformulations and the industry does not expect further reductions of sugar demand. The sugar master plan is discussed at the end of the report under the Policy section.

Sugar in South Africa is primarily used for direct human consumption and for industrial purposes e.g. as an ingredient for producing beverages and confectionary products. The industrial demand for sugar

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accounts for 60 percent of the total domestic sugar sales, while direct home consumption accounts for 40 percent of the total domestic sugar sales. The per capita consumption of sugar in South Africa is about 45 kilograms (kg) per year, which is higher than most countries in the Southern Africa region whose per capita consumption is below 30 kg per year. However, the South African per capita consumption is still much lower to the U.S. per capita consumption of between 68 to 77 kg per year. The retail price of brown and refined sugar in South Africa ranges from US$1.45 to US$1.61 per kg, and is affordable to the majority of the population.

Post expects a continued growth in the use of sweeteners based on the on-going investments by local producers including sugar cane growers and milling companies in the sweetener sector in response to consumer health trends. The trend by the beverage sector to reformulate their drinks to either avoid or minimize the impact of the sugar tax by combining less sugar with an increased use of sweeteners such as aspartame, stevia leaf extract, sucralose and acesulfame potassium, is expected to stabilize in the 2021/22 MY and coming years. This is based on commitments by beverage manufactures under the Sugar Industry Master Plan and most seem to have completed their reformulations. South Africa is currently a net exporter of sweeteners (HS21069035) as shown in Figure 5. The increased demand of sweeteners over the years has resulted in the growth of sweetener domestic production, and exports of sweeteners. Some sugar milling companies are also invested in the sweetener industry. Sugar cane growers are in the process of investing in the production of natural sweetener stevia as part of their diversification initiatives. While Figure 5 shows that imports of Sweetening Substances (Excluding Sweetening Substances With A Basis Of Saccharine) has declined, it is widely believed that some sweeteners are being declared under Food Preparations – Other (HS21069090) and this category has grown significantly to a peak of 38,790 MT in 2019, from 23,400 MT in 2013.

Figure 5: Import and Exports of Sweetening Substances (HS 2106.90.35) 900 4,000

800 3,500

700 3,000 600 2,500 500 2,000

400 Exports (MT) Exports

Imports (MT) Imports 1,500 300 1,000 200

100 500

0 0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Imports Exports Source: Trade Data Monitor (TDM)

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Trade:

Exports

Post forecasts that sugar exports will increase marginally by 1 percent to 995,000 MT in the 2021/22 MY, from 985,000 MT in the 2020/21 MY. This is based on the increase in production, and minimal disruptions to some global supply chains by COVID-19. The 2020/21 MY exports were revised downwards to 985,000 MT based on the pace of exports up to February 2021.

South Africa always exports its surplus sugar regardless of the global prices and sometimes at a loss because of the domestic sugar regulations that stipulate that the price of cane paid to sugar cane growers should be based on revenue obtained from the sugar sales in the local and export market. As a result, South Africa always exports surplus sugar once the domestic market and the South African Customs Union (SACU) markets are adequately supplied. SACU members include South Africa, Namibia, Botswana, Lesotho, Eswatini (Swaziland) and Namibia.

Malaysia was the leading market for South African raw sugar exports accounting for 54 percent of the total raw sugar exports in the 2019/20 MY, followed by India (12 percent), China (8 percent), Italy (7 percent), Namibia (5 percent), United Kingdom (4 percent), and United States (3 percent). Raw sugar exports to Malaysia, India and China are not consistent and are driven by the large surplus sugar available in South Africa. Notably, Malaysia is always a net importer of raw sugar to process for further re-exports. Changes in the market share of exports are expected in the 2021/22 MY and 2020/21 MY, based on the pace of exports up to February 2021 and decreases in demand from traditional markets due to the impact of COVID-19.

Raw sugar exports from South Africa to the European Union (EU) account for 8 percent of the total South African raw sugar exports in the 2019/20 MY, due to the annual duty free quota of 150,000 MT that South Africa was granted under the Southern Africa Development Committee (SADC) - EU Economic Partnership Agreement implemented in 2016. Exports to the EU are expected to decrease in the 2020/21 MY, based on the pace of exports up to February 2021, and low prices in the EU. The impact of Brexit to South African sugar exports has been minimal as South Africa agreed to a 60,000 MT quota to the United Kingdom in 2019.

South Africa is a beneficiary of the United States Tariff Rate Quota (TRQ) annual raw sugar allocation of 24,220 MT for Fiscal Year (FY) 2021, which allows it to export raw sugar duty free to the United States. The TRQ amount has remained constant over the last several years. The United States is a premium market for South Africa. South Africa always utilizes its quota allocation each year has already fully utilize the 2020/21 MY quota allocation. The sugar industry marketing year runs from April to March, while the TRQ financial year runs from October to September, which results in the TRQ for two different financial years being recorded in one marketing year. For example, Table 5 shows that exports to the United States were 56,539 MT in the 2017/18 MY, yet this tonnage refers to the TRQ allocations for two fiscal years.

Mozambique, Namibia, United Kingdom, Madagascar, Botswana, and Tanzania are the main refined sugar export markets for South Africa. Refined sugar exports have been converted to raw sugar values using a factor of 1.07. South African refined sugar exports to the United States are inconsistent and

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minimal due to the absence of a guaranteed sugar quota allocation for refined sugar. The refined sugar quota allocations in the United States are based on a first-come-first-serve basis, and are usually utilized by South American countries including Mexico, Brazil and Columbia.

Table 5: Raw Sugar Exports South Africa Exports to the World Commodity: 170111/170112/170113/170114 Year Ending Plus: April - March Partner Country Unit 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21* World T 157,805 128,596 454,405 575,043 971,026 615,526 South Korea T 0 0 0 0 0 171,832 Malaysia T 0 0 0 281,450 527,754 93,037 Indonesia T 0 0 0 0 0 57,500 China T 0 0 157,245 0 73,500 50,925 United States T 23,087 0 56,539 22,914 26,285 47,355 Taiwan T 0 0 0 0 0 35,000 Japan T 0 0 27,000 0 0 30,000 EU 27 + UK T 0 1 140,009 216,769 149,880 28,800 Italy T 0 0 105,008 60,635 70,000 28,800 India T 0 0 0 0 113,866 26,800 Unidentified T 36 0 0 6,760 1 25,602 Namibia T 98,034 93,083 26,398 14,547 48,228 15,990 Lesotho T 14,355 13,285 12,436 13,322 13,029 13,096 Botswana T 19,249 18,631 21,880 13,673 15,345 11,864 Tanzania T 2 10 6 2,323 11 2,007 Congo (DROC) T 13 12 2 70 1,021 1,727 Mozambique T 2,086 2,361 1,562 2,809 1,733 1,636 Madagascar T 0 29 0 0 0 1,300 Zimbabwe T 110 5 1 4 35 686 Eswatini T 419 408 738 292 283 353 Saint Helena T 33 19 23 10 7 8 Ghana T 1 0 0 26 7 6 Zambia T 6 6 7 4 6 2 Malawi T 5 1 0 2 1 1 United Kingdom T 0 0 35,000 100,110 41,000 0 Spain T 0 0 0 31,000 20,000 0 Bulgaria T 0 0 0 25 18,480 0 Greece T 0 0 0 0 400 0 Angola T 131 741 54 60 21 0 *Export figures up to February 2021. Source: Trade Data Monitor (TDM)

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Table 6: Refined Sugar Exports South Africa Exports to the World Commodity: 170191/170199 Year Ending Plus: April - March Partner Country Unit 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21* World T 146,195 87,564 314,140 466,306 480,318 358,294 Mozambique T 55,231 25,272 142,019 195,796 164,328 113,319 EU 27 + UK T 20 47 23,976 40,761 119,508 85,590 Namibia T 11,077 7,985 36,169 65,340 66,768 56,983 United Kingdom T 2 0 12,824 27,394 79,960 49,061 Madagascar T 9,796 81 22,466 40,789 31,613 22,388 Botswana T 24,624 38,755 30,257 32,470 30,866 18,513 Tanzania T 1 2 1,553 17,381 901 14,841 Italy T 1 0 1,627 9,515 17,600 14,695 Spain T 0 17 0 2,157 17,266 13,233 Kenya T 2,291 0 6,406 9,264 0 11,494 Greece T 0 0 8,207 51 2,782 8,188 Unidentified T 1,641 207 0 2,756 38 5,701 Uganda T 857 0 5,362 19,436 0 5,065 Lesotho T 5,081 5,341 4,668 4,767 3,675 4,157 Angola T 13,282 5,414 14,749 11,293 7,139 3,705 Rwanda T 0 0 910 1,259 0 3,366 Comoros T 3,679 967 4,078 2,522 2,437 3,187 Congo (DROC) T 2,498 46 1,472 6,907 2,163 2,501 South Sudan T 0 0 0 567 0 2,204 Zimbabwe T 10,318 405 10 26 61 1,367 Zambia T 77 50 69 23 16 1,307 Burundi T 0 0 428 428 0 746 Israel T 450 690 1,008 696 0 642 United Arab Emirates T 6 1 0 0 0 556 Cyprus T 0 0 0 0 690 230 Sierra Leone T 0 0 54 0 0 227 France T 0 0 0 189 107 180 Sudan T 0 0 0 567 0 134 Mayotte T 2,316 2,109 3,024 2,836 2,625 107 Seychelles T 27 32 139 715 939 90 Eswatini T 42 43 165 350 83 40 Mauritius T 1 0 1 3,236 0 27 Malawi T 43 21 27 14 17 12 Ghana T 2,269 8 3,105 1,863 1 12 United States T 128 8 2,698 94 19 4 * Export figures up to February 2021. Source: TDM

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Imports

Post forecasts that total sugar imports will be stable and only marginally increase by less than 1 percent to 435,000 MT in the 2021/22 MY, from 431,000 MT in the 2020/21 MY, based on the increase in Eswatini exports, partially offset by incentives (rebates) and commitments by manufactures to utilize local sugar instead of imports and depressed demand of sugar imports due to COVID-19.

Raw sugar imports from Eswatini accounted for 93 percent of the total South African raw sugar imports in the 2019/20 MY because Eswatini is part of SACU and its imports are not subject to any customs duty. This is expected to continue in the 2021/22 MY and 2020/21 MY. Raw sugar imports from Brazil and the United Arab Emirates only accounted for less than 1 percent of the total South African imports in the 2019/20 MY, down from 20 percent in the 2017/18 MY due to the impact of the increase in customs duties. The origin of United Arab Emirates sugar is believed to be from Brazil or India. Imports from Brazil and the United Arab Emirates fluctuate based on the level of customs duty applicable, as explained in the section under import restrictions using the domestic Dollar Based Reference Price (DBRP).

Refined sugar imports from Eswatini accounted for 40 percent of the total South African refined sugar imports in the 2019/20 MY, followed by Brazil (20 percent), Zambia (15 percent), India (10 percent) and Malawi (3 percent). The percentage share of refined imports from Brazil and the United Arab Emirates also decreased from 49 percent and 16 percent in the 2017/18 MY, to 15 percent and 1 percent in the 2019/20 MY, respectively.

Table 7: Raw Sugar Imports South Africa Imports from the World Commodity: 170111/170112/170113/170114 Year Ending Plus: April - March Partner Country Unit 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21* World T 362,076 368,474 433,326 329,169 381,568 345,646 Eswatini T 331,895 291,848 256,174 284,383 353,235 331,273 Mozambique T 0 0 20 1,999 2,521 3,302 Malawi T 0 0 532 3,794 5,488 3,298 Zambia T 9,991 5,925 5,023 1,501 258 3,053 Brazil T 15,552 23,638 43,989 9,260 1,215 2,348 India T 5 73 27 3,361 12,706 1,087 Zimbabwe T 0 1,330 0 8,334 2,902 812 Mauritius T 44 61 2,462 469 79 243 Unidentified T 1,044 1,094 717 1,874 1,875 67 Germany T 135 158 2,033 2,026 104 62 Namibia T 391 538 71 0 0 12 Botswana T 1 36 177 103 172 9 Belgium T 0 5 4,925 1,200 245 5 * Import figures up to February 2021. Source: TDM

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Table 8: Refined Sugar Imports South Africa Imports from the World Commodity: 170191/170199 Year Ending Plus: April - March Partner Country Unit 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21* World T 107,559 375,525 314,214 212,420 116,267 79,350 Brazil T 63,306 184,136 152,380 41,323 23,546 30,086 Eswatini T 17,903 30,341 27,370 62,205 46,657 26,708 Zambia T 6,629 3,632 2,598 10,776 17,035 10,538 Malawi T 8,753 5,004 5,487 5,123 3,003 3,108 India T 3,390 6,021 2,147 13,265 12,044 2,539 Mauritius T 0 4 2,365 2,861 2,809 2,308 Zimbabwe T 126 0 254 0 1,410 1,564 Germany T 45 4,555 3,921 6,051 509 1,163 Russia T 0 0 0 0 0 535 Mozambique T 0 0 0 1,141 667 214 France T 1 10,845 976 14,644 1,220 128 United Kingdom T 459 506 116 728 89 109 Poland T 2,354 1,573 5,548 2,087 0 107 Namibia T 0 0 127 242 490 81 Unidentified T 145 4 1,181 7,155 2,354 76 Botswana T 78 76 313 2 74 37 Belgium T 11 12 1,800 524 12 25 China T 11 14 148 2 6 6 Netherlands T 3 2 6 1,252 5 5 United States T 21 870 295 868 517 4 * Import figures up to February 2021. Source: TDM

Stocks

Post estimates that the ending sugar stocks will reduce significantly to 49,000 MT in the 2021/22 MY, from 163,000 MT in the 2020/21 MY, based on the increase in consumption and exports. All sugar produced in each marketing year is sold at the end of the season in order for the industry to share the revenue between growers and millers as per the agreed Division of Proceeds formulas. High closing stocks pose a cost challenge to the industry as the growers and millers have to pay for the storage of such sugar.

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Table 9: PS&D for Sugar Sugar, Centrifugal 2019/2020 2020/2021 2021/2022 Market Begin Year April 2019 April 2020 April 2021 South Africa USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 498 498 220 300 163 Beet Sugar Production 0 0 0 0 0 Cane Sugar Production 2295 2295 2225 2106 2174 Total Sugar Production 2295 2295 2255 2106 2174 Raw Imports 382 382 400 346 350 Refined Imp.(Raw Val) 116 116 100 85 85 Total Imports 498 498 500 431 435 Total Supply 3291 3291 2945 2837 2772 Raw Exports 971 971 950 625 630 Refined Exp.(Raw Val) 480 480 290 360 365 Total Exports 1451 1451 1240 985 995 Human Dom. Consumption 1600 1520 1660 1670 1710 Other Disappearance 20 20 19 19 18 Total Use 1620 1540 1679 1689 1728 Ending Stocks 220 300 26 163 49 Total Distribution 3291 3291 2945 2837 2772

(1000 MT)

Trade Policies and Regulations:

United States Sugar Tariff Rate Quota Allocation

South Africa is a beneficiary of the United States Tariff Rate Quota (TRQ) allocation, which allows it to export raw sugar duty free to the United States. The United States is considered a premium market for South African raw sugar exports. South Africa has already utilized the 24,220 MT that it has been allocated for the 2021 Fiscal Year (FY), and has the capacity to utilize any additional sugar allocations available. The TRQ amount has remained constant over the last several years. South Africa always utilizes its quota allocation and additional reallocations each year as the United States is regarded as a premium market for the industry.

European Union Sugar Quota and Policies

South Africa was granted an annual quota of 150,000 MT sugar to export sugar duty free to the European Union under the SADC/EU Economic Partnership Agreement that was finalized in October 2016. In the 2020/21 MY, South Africa did not fully utilize the EU quota due to unfavorable prices and reduced demand in the EU market.

Import Restrictions Based on the Dollar Based Reference Price

South Africa applies the Dollar Based Reference Price (DBRP) mechanism to ensure that, inclusive of the duty, the DBRP (currently US$680 per ton), is the lowest price that an importer will pay for imported sugar. In the event that the import prices are lower than the DBRP, an import duty is applicable, while an import price higher than the DBRP would result in no import duties payable. The

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DBRP was increased to US$680 per ton in August 2018, from US$566 per ton in order to restrict the increases in imports from Brazil and the United Arab Emirates, and because the DBRP of US$566 per ton was below the cost of sugar production in South Africa. Due to the low global sugar prices, all imports of sugar below the DBRP into South Africa currently attract a customs duty of 414.85c/kg (US$0.28/kg) as shown in Table 10.

Customs Import Duties

Table 10: Customs Duties as of September 2020 Heading/ Statistical Rate of Duty (c/kg) CD Article Description Subheading Unit General EU EFTA SADC MERCOSUR 17.01 Cane or beet sugar and chemically pure sucrose, in solid form: 1701.1 Raw sugar not containing added flavoring or coloring matter: 1701.12 2 Beet sugar Kg 414.85 414.85 414.85 414.85 414.85 1701.13 9 Cane sugar Kg 414.85 414.85 414.85 414.85 414.85 1701.14 5 Other cane sugar Kg 414.85 414.85 414.85 414.85 414.85 1701.9 Other: Containing added 1701.91 2 flavoring or coloring Kg 414.85 414.85 414.85 414.85 414.85 matter 1701.99 3 Other Kg 414.85 414.85 414.85 414.85 414.85 Source: South African Revenue Service.

Sugar Tax on Sugar Sweetened Beverages

On December 15, 2017, the South African Revenue Services (SARS) announced that it will start to collect tax from domestic and imported sugar sweetened beverages, excluding 100 percent fruit juices from April 1, 2018 (Click here to download the notice). The tax became effective in April 2018, and was initially set at 2.1 cents per gram of sugar content that exceeds 4 grams per 100ml, which means that the first 4 grams per 100ml are levy free. The tax was increased to 2.21 cents in 2019. The tax on sugar sweetened beverages has had a severe impact to the sugar and beverage sectors. The beverage manufacturing sector has undertaken several measures to either avoid or minimize the impact of the sugar tax by introducing “low” or zero sugar products, reducing packaging sizes, and reformulating their products to reduce sugar content. This resulted in the reduction in sugar usage by at least 30 percent (200,000 MT) in the 2018/19 MY, and between 250 000 to 300 000 MT in the 2019/20 MY. Reformulation seems to have stabilized in the 2020/21 MY, and the sugar industry managed to grow demand by about 150,000 MT.

The decrease in domestic sugar demand due to the sugar tax, resulted in the increase in South African sugar exports at a lower price. South Africa always exports its surplus sugar regardless of the global prices and sometimes at a loss because of the domestic sugar regulations that stipulate that the price of cane paid to sugar cane growers should be based on revenue obtained from the sugar sales in the local and export market for that specific season. As a result, the sugar industry revenue dropped by up to R1.8 billion (US$124 million), further reducing the price paid to sugar cane growers in the 2018/19 MY and 2019/20 MY. This placed many sugar cane farmers under serious viability strain and put at least 10,000 on farm jobs at risk. Similarly, sugar milling companies are also under profitability strain due to this revenue loss. Additional information on the impact of the sugar tax may be obtained from the

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following GAIN report published in March 2019, South African Sugar Industry Crushed by Not So Sweet Tax.

The South African Sugarcane Value Chain Master Plan to 2030

On November 17, 2020, the Department of Trade, Industry and Competition (DTIC), the Department of Agriculture, Land Reform and Rural Development (DALRRD), and industry stakeholders signed off the South African Sugar Industry Master Plan. The Sugar Industry Master Plan may be downloaded at the following link, https://sasa.org.za/wp-content/uploads/2020/11/SA-Sugar-Master-Plan-1.pdf . Industry Master Plans seem to be common under the current administration as a measure to support industries in South Africa. For example, the poultry industry also has a master plan. In general Master Plans provide a comprehensive plan of action to achieve common policy objectives, and provide guidance on policies, support, strategies and actions required to achieve specified targets. Notably, the South African Sugar Industry Master Plan Vision for 2030 is “A diversified and globally competitive, sustainable and transformed sugarcane-based value chain that actively contributes to South Africa’s economic and social development, creating prosperity for stakeholders in the sugarcane value chain, the wider bio-economy, society and the environment.”

The objective of the Master Plan is to ensure the long-term sustainability and profitability of the sugar sector in South Africa. The masterplan aims to achieve this over the next three years by, among other things, increasing local market sugar by 300,000 MT through committing manufacturers to prioritize locally grown and manufactured sugar in their product ranges; improving import protection; the development of small-scale growers and increasing transformation in all sectors of the industry; production diversification support and the potential restructuring of the industry. The Master Plan has been widely welcomed by the industry and seems to be a positive step in highlighting the declining status of the South African sugar industry and the necessary actions required to address these challenges. However, the success of the Master Plan will require extensive co-operation, effective implementation, and pragmatic approach to the challenges inherent in the plan and the sugar industry. The Sugar Industry Master Plan is not expected to impact South Africa`s ability to utilize and fulfill the United States Tariff Rate Quota (TRQ) for raw sugar.

Sugar Marketing and Sales

The South African Sugar Association is by law the only organization permitted to export raw sugar produced in South Africa. Sugar milling companies are only permitted to export refined sugar. South Africa always exports its surplus raw sugar regardless of the global prices and sometimes at a loss because of the domestic sugar regulations that stipulate that the price of cane paid to sugar cane growers should be based on revenue obtained from the sugar sales in the local and export market for that specific season. The South African sugar industry provides a rebate (discount) to domestic manufactures to promote the sale and use of locally produced sugar.

Electricity Co-generation

The South African sugar industry currently uses bagasse to generate electricity which is fed back to the sugar mills during peak production periods. None of the electricity generated from the sugar mills is supplied to the national electricity grid due to the absence of appropriate incentives and policy by the

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government or Eskom the state owned electric company. This is expected to change when the Master Plan is implemented effectively.

Ethanol Production

There is currently no commercial production of biodiesel and fuel grade ethanol from sugar cane in South Africa. However, some of the sugar mills produce beverage grade ethanol, and industrial alcohols as by-products or back-end products from molasses. The production of ethanol and other products is expected to change when the Master Plan is implemented effectively.

Land Expropriation without Compensation

The impact of the ongoing policy discussion on land expropriation without compensation to the South African sugar industry is uncertain. The sugar industry has no official position on this policy and has decided to await the outcome of the parliamentary process. Please see the December 2019 GAIN report, Constitutional Amendments to Expropriate Land Without Compensation Moving Ahead.

Attachments:

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